Stocks and sterling pounded again, UK downgraded
United States stocks indices were sharply lower Monday as investors grappled with the fallout of Britain's vote to leave the European Union.
The British pound, which last week plunged to its lowest level since 1985, continued to fall as traders expected the British economy would take a hit.
"When you get major news like this that is unexpected, as the 'Brexit' vote was, it often takes about five trading days to kind of work through the system," said J.J. Kinahan, chief strategist at TD Ameritrade.
The Dow Jones Industrial Average lost 260.51 points, or 1.5 per cent, to 17,140.24. The average had been down more than 337 points earlier in the day. The S&P 500 index slid 36.87 points, or 1.8 per cent, to 2,000.54. The Nasdaq composite fell 113.54 points, or 2.4 per cent, to 4,594.44.
The latest sell-off followed the market's plunge on Friday, when the Dow and S&P 500 clocked their biggest losses since August, and the Nasdaq notched its worst day since August 2011. Despite the losses, the market is still well above the lows it reached in early February, when the S&P 500 closed as low as 1,829.
Ratings agency Standard & Poor's added to the market's jitters Monday by stripping the UK of its top credit grade over the EU exit vote.
Utilities stocks, traditionally seen as a more attractive investment at times of heightened market volatility, notched the biggest gain.
Banks and other financial companies slumped as investors speculated that the global economic uncertainty caused by Britain's decision to leave the EU will prompt the US Federal Reserve to hold off on raising its benchmark interest rate. Banks benefit from higher interest rates, which translate into more revenue from loans and credit cards.
"A lot of the expectations about what these financial stocks would be worth have changed," Kinahan said. "This sort of takes Fed rate raises off the table for a while, maybe through the end of 2016."
European stock markets added to their steep losses from Friday, when concern over the vote outcome wiped out US$2.1 trillion of stock value from Hong Kong to London to New York.
On Monday, Britain's FTSE 100 fell 2.5 per cent, while Germany's DAX and France's CAC 40 each gave up three per cent.
TRADING BLOC EXIT
Traders were bracing for more aftershocks as EU leaders press London to start the complex process of leaving the 28-nation trading bloc. Prime Minister David Cameron wants to wait several months.
"Markets will be nervous given that the EU and UK have some mismatch in terms of timing of exit procedures and negotiations," said Mizuho Bank analysts in a report.
In the first direct reflection of business sentiment in Britain, a leading business group said Monday that 20 per cent of its members plan to move some of their operations outside of the UK in light of the country's decision to leave the EU. The Institute of Directors said that a survey of its 1,000 members showed that three out of four believe that Brexit will be bad for business.
Earlier, some Asian markets had bounced back somewhat following reports that Japanese Prime Minister Shinzo Abe instructed financial officials to take steps to stabilise financial and currency markets. Tokyo's Nikkei 225 rose 2.4 per cent, making up some of the ground it lost on Friday, when it closed nearly eight per cent lower.
The Shanghai Composite Index gained 1.2 per cent, while Hong Kong's Hang Seng shed 0.2 per cent. Seoul's Kospi rose 0.1 per cent.
Bond prices rose. The yield on the 10-year Treasury note fell to 1.45 per cent from 1.56 per cent late Friday.
In currency markets, the British pound slid to US$1.3176 from US$1.3638 late Friday, despite the British Treasury's reassurances that the economy was strong enough to withstand the uncertainty. The euro weakened to US$1.1005 from US$1.1121, while the Japanese yen fell to 101.97 from 102.24.
Benchmark US crude slid US$1.31, or 2.7 per cent, to US$46.33 a barrel in New York. Brent crude, used to price international oils, fell US$1.25, or 2.6 per cent, to US$47.16 a barrel in London. Natural gas rose 5 cents to US$2.72 per 1,000 cubic feet.